Other implications include:

Possible increase in energy compliance costs on property owners

The need for landlords/developers to build smart metering

infrastructure into new projects

Landlords retrofitting their premises with smart meters holistically, or,

as part of fitouts prior to new tenants moving in

Development of possible lock in strategies with the costs of solar, batteries

and other local generation solutions becoming more competitive.

One way landlords can lock in margins from the sale of energy to tenants is to

install local supply (e.g. rooftop solar) to secure long term revenue streams (up

to 10 years for residential tenants, but longer for non-residential tenants).

On 1 December 2017,

a new co-operative scheme

will commence which is

designed to improve

'embedded' tenants' access

to electricity competition.

An embedded tenant is one

who purchases electricity from

the property owner (or

statutory corporation) rather

than from an external

electricity retailer. They often

have little flexibility in choosing

their own energy supplier.

Changes to improve

competition for electricity

metering and data provision

will also commence at the

same time.

Together, the reforms are

expected to facilitate the

increased roll-out of 'smart'

meters in jurisdictions outside

of Victoria. Under this market

led approach, smart meters

will be deployed where new

and replacement meters are

required or where energy

businesses and consumers

want access to smart

metering services.

FINSights: New electricity scheme to change power dynamics

Autumn 2017

Electricity retailers are already actively securing contracts with the most desirable embedded energy customers.

Instead of providing energy supply to one customer (landlord), the supplier will now have an expanded customer base

(tenants in a shopping complex, office block, industrial precinct), with major/anchor tenants most highly prized.

Their offerings to clients may require enhancement to billing systems, or to related product offerings such as 'smart meters',

new energy (eg on-site batteries, solar) or customer load management products.

Stand-alone metering providers and energy consulting businesses may also be looking for funding to invest in new product

offerings or provide metering services to meet the expected growth in demand arising from the regulatory reforms.

Some landlords derive a revenue stream

by buying electricity for their property at a

'bulk' rate from an electricity retailer and

on-selling it with a mark-up to embedded

tenants. The reforms are likely to disrupt

existing managed monopoly networks

and change market dynamics with energy

retailers (large tenants can make their

own deals and landlords' negotiating

strength may be diminished). This may

erode margins and, potentially, the

property owner's cash flow.

The decentralisation of the current electricity distribution model will enable retail contestability. Tenants will be able to:

Contract directly with energy providers

Have an opportunity to lower costs and preferences on timing and service requirements

Receive better data about their usage.

The associated roll out of smart meters will also bring better data. Tenants may be motivated to invest in systems to

aggregate and monitor electricity usage across their portfolios to measure and manage their environmental footprint.

Developers and manufacturers will be

able to provide manufacturing,

installation and retrofit services to new

developments with the roll out of smart

metering technology and infrastructure.

An expanded customer base for

servicing multiple user tenants will

also present business expansion

opportunities.

Financers may be able to provide

asset financing for smart metering and

technology platforms and securitisation

of associated revenue streams.

Metering in some properties

(particularly older properties) will not

be sufficient to support electricity

competition for embedded tenants,

and will need to be replaced. Metering

providers engaged by tenants (or their

retailers) will want to ensure that new

metering infrastructure is not subject

to the property securities held by

the property owner's financiers

(ie if fixtures).

Conversely, if the premises does have

smart metering (or metering otherwise

capable of supporting competitive

supply to embedded tenants),

property owners may be motivated to

sell/transfer that infrastructure to

tenants, and have it removed from

security arrangements for the property.

ELECTRICITY RETAILERS

LANDLORD

TENANTS

DEVELOPERS AND

MANUFACTURERSWe have identified five stakeholder groups who will benefit from new

opportunities, or may need to review their operations to remain competitive:

Joel ReidSpecial Counsel

T: + 61 7 3119 6333

M: +61 421 587 427

Keith RoversPartner

T: + 61 2 9921 4681

M: + 61 411 275 823

FINANCIERS